Outsourcing And Insourcing

Given the extent of globalization, the available technology, and the ease of creating virtual teams, new outsourcing and insourcing solutions have been created over the past several decades. Outsourcing and insourcing work is not simply sending it out or bringing it back into an organization. It is a set of activities that determine where and how work should be done, and by whom and under what conditions to increase its value-add content. The concept of what an organization “is” and “does” is under constant review. Outsourcing and insourcing have grown to more than the sum of the work being moved around the world. As an example, a manufacturer might insource some work activities that reduce the order-to-cash lead time to gain sales or reduce cost. Or perhaps it needs to increase customer satisfaction and revenue by expanding current product and service offerings by purchasing from competitors. These decisions are made from an end-to-end supply chain perspective to add value for all participants Table 13.11 lists reasons why organizations outsource or insource work. Outsourcing work to increase capacity is a major benefit. Insourcing is sometimes needed to utilize in-house capacity more effectively. Organizations should be careful to insource only value-add work aligned with a core competency. Insourcing extraneous work into a process that is not designed for it causes operational inefficiencies. A classic example is when high and low technology is mixed, with the result that quality problems occur in the high technology operations and high unit costs occur in the lower technology operations. The result is overpriced or

underperforming products or services. The historical solution is to separate processes supporting different technologies unless they can be efficiently combined to maintain efficiencies regardless of the work being done. If insourced work reinforces core competencies and is properly integrated, there should not be process issues.

A second reason for outsourcing or insourcing work is to obtain new and unique technology. When outsourcing work, it might be more efficient to let other organizations that have advanced technology do portions of the work that your organization cannot or will not do. But proper contractual and other controls need to be in place to ensure the technology remains available, performance and costs are stable, and it cannot be used without permission. For insourcing, organizations can license technology from other organizations with similar assumptions. Minimizing financial risk or obtaining scarce materials are other benefits. The remainder of benefits include increasing operational synergies; reducing order-to-cash lead times in the supply chain; moving work closer to its markets to reduce lead time and cost; aligning resources to processes that are strategically important to drive sales growth, improve volume efficiencies, and expand into new markets; satisfying local country rules, regulations and laws; working with organizations that have a favored regulatory position such as licenses or permits; obtaining cultural expertise; accessing design and marketing expertise; or deploying challenging operations that can only be done in certain regions of the world. These include work that must be done under dry, wet, hot, or cold conditions or requires special handling equipment or skills.

Table 13.12 shows strategies used to create new relationships for outsourcing or insourcing work across a supply chain. These apply to the management of both intangible and tangible assets such as fixed assets, facilities and equipment, information, product, services, and people. These span a range of options from the outright sale of a business or process to the licensing of new technology and methods for sharing information. Regardless of the supply chain participant relationships, it is important that evaluations of outsourcing and insourcing are made using predetermined decision criteria and a risk analysis.

Table 13.13 provides key criteria that can help evaluate the feasibility for outsourcing or insourcing between organizations and locations. This list can be expanded or reduced depending on needs. In addition to ranking the relative importance of each evaluative factor, the methods necessary

TABLE 13.12

Outsourcing and Insourcing Scenarios

Strategy	Intangible Assets & Intellectual Property	Fixed Assets & Facilities	Equipment	Labor
Sale of Core Business
Sales Non-Core Business
Joint Venture
Partnership
Licensee Relationship
Share Information
Share Resources
Supplier Relationship
Contractor Relationship

Almost anything can be outsourced or insourced

to collect and analyze data for each criterion should be established and a model built for each combination of criterion levels to evaluate decisions.